Daniel v Tee,  EWHC 1538 (Ch)
The beneficiaries sought compensation for losses suffered by a will trust established on the death of their father. The trust assets had been invested in a range of equities linked to the technology sector during the period of 2000 to 2002. Based on independent financial advice, the trustees decided the portfolio would comprise around 80% equities. The trust fund performed poorly and suffered heavily when the “dot com” bubble burst in 2001. The court was asked whether the trustees had acted in breach of their duties for, amongst other things, failing to diversify the investment portfolio; failing to keep the portfolio under review; and incorrectly relying on advice by investment advisors. The trustees denied the claims. They relied on s.61 of the Trustee Act 1925 which gives the courts discretion to relieve trustees in situations where trustees have acted reasonably and honestly.
The court held that the decision to opt for an investment portfolio comprising of 80 % equities was one which no trustee could have reasonably made whilst complying with his duty to act prudently. However, the claimants ultimately failed to prove that any losses arose from the alleged breach of duty.
The High Court did however criticise the trustees for their approach in devising an investment strategy. The judge stated that the professional trustees “adopted an approach which was less balanced and diversified than I consider many trustees would have thought appropriate”. In relation to the s.61 defence, the court held that there was scope for its use had the trustees been found liable for breach of duty. The trustees had acted in reliance on professional advice which they reasonably and honestly believed was competent.
This decision demonstrates that professional trustees should consider the importance of implementing an investment strategy appropriate for the objectives and risk profile of the trust. Whilst not expected to be experts in financial investments, they need to ensure investments are reviewed periodically and independent advisors are aware of the strategy. The case also highlights the significant protection given to trustees under s.61 if they can show that proper advice was obtained and honestly relied upon.
A and others v B and others,  EWHC 340 (Ch)
In this case, the court was asked to sanction an arrangement where the requirement to obtain consent of remote beneficiaries under the Variation of Trusts Act 1958 (VTA) was bypassed.
The facts involved a series of trusts and sub-funds which were to be varied to extend the perpetuity periods by around 100 years. Normally, all adult beneficiaries must agree to a variation. Under section 1 of the VTA, the court can approve variations on behalf of those who are unable to consent for themselves.
The trustees sought to avoid the need for the court’s consent on behalf of a group which included spouses and charities (all of which were unascertained potential beneficiaries under the various sub-funds). To do this, the trustees would release their powers of appointment to benefit this remoter class of beneficiaries. This would deprive the class of any rights they would have and therefore their consent would no longer be required. The variation would then take effect and the trustees would immediately reinstate the powers to benefit the class.
The court held that this arrangement was acceptable. The fiduciary nature of the power of appointment which the trustees proposed to suspend and reinstate was noted by the court. The trustees would be required to exercise such power for the proper purposes. The court held that there was no “fraud on the power” as the trustees’ only intention was to eliminate the need for additional parties to be joined to the application. By extending the perpetuity period, the trust assets would be preserved and this would increase the narrower class of beneficiaries’ chances of benefiting. The court also held that the trustees believed the variation was in the best interests of the “core” beneficiaries.
The court has taken a practical approach to an arrangement whereby a proposed variation would enhance the value of the trust fund for both the “core” group of beneficiaries and also the unascertained narrower class. It should be noted that this case was decided on its unique facts and it is likely any variation which would adversely affect the interests of remoter beneficiaries would still require consent from the court.
Blades v Isaac,  EWHC 601 (Ch)
This case involved a number of issues including the disclosure of trust information and the assessment and determination of costs in trusts litigation.
A beneficiary brought proceedings against the defendant trustees for failing to disclose information about her deceased mother’s estate. The trustees had used their power of appointment to include the claimant’s sister (along with the claimant) in the class of beneficiaries to benefit under a discretionary trust established under the claimant’s mother’s will. When the claimant asked the trustees for a breakdown of the estate and trust assets, the trustees refused on the basis that disclosure would severely damage the relationship between the claimant and her sister. The trustees obtained an opinion from counsel which confirmed this position. The claimant issued proceedings against the trustees for disclosure of the relevant information. The trustees then sought advice from a different counsel who came to a different conclusion. Upon this advice, the trustees disclosed the information to the claimant. The claimant applied to court and argued that the defendant trustees should pay her costs and their own without the use of the trust funds.
The High Court decided that it was not fair to deprive the trustees of an indemnity. Their actions did not amount to misconduct and they had intended to act in the best interests of the beneficiaries whilst steering a difficult family relationship. The trustees had rightly sought counsel’s opinion on whether the information should be disclosed. They had followed this opinion. When proceedings were brought they had acted correctly in seeking a second opinion which they followed.
This case demonstrates the complexities surrounding the payment of costs in trusts litigation. However, trustees should feel some comfort in the approach taken by the court in providing the trustees with a costs indemnity. The court seems to have been swayed by the trustees’ sensible decision to instruct counsel at the opportune moments.
While the case was brought primarily to decide the issue of costs, the court also commented on the disclosure of the opinion from counsel. It held that counsel’s opinion was not subject to legal professional privilege as against the claimant beneficiary. The opinion was a trust document obtained by the trustees to benefit the trust. This point should remind trustees that legal advice they obtain may not be protected by privilege against the beneficiaries.